The industrialized countries have not walked the talk of financing the climate mitigation and adaptation efforts of the poorer countries.
Why does the burden lie on industrialised countries? Historical responsibility
- A bulk of the accumulated GHGs, the reason for global warming, have come from a group of about 40 rich and industrialised countries, usually referred to as Annex I countries in the 1992 UNFCCC.
- The contribution of the poorer countries (the Global South) was negligible.
- Additionally, countries in the Global South were already struggling to pay their external debt, exacerbated by the pandemic.
Mechanisms that made industrialised countries liable:
- The Kyoto Protocol (1997) recognised the “common but differentiated responsibilities” in the fight against climate change.
- The Paris Agreement (2015) asked countries to set voluntary emission targets but required the richer countries to make financial transfers to the developing economies.
- It set a floor of $100 billion per year (that the developed countries had committed to raising from 2020) for these transfers.
- The definition of climate finance states that counting commercial loans should not be done.
- In 2020, countries transferred $83 billion into the climate finance fund to be paid to the countries of the Global South.
- Out of this, less than $25 billion was in the form of grants.
Recent efforts to boost climate finance:
- New Global Financing Pact
- The EU has put forward a proposal, called the Carbon Border Adjustment Mechanism (CBAM).
- Active imposition of tariffs on imports from other countries is involved when those countries are observed to be using carbon-intensive methods of production.
- This mechanism, starting in 2026, will cover products such as cement, steel, aluminium, oil refinery, paper, glass, chemicals and electricity generation.
The CBAM is expected to achieve three objectives:
Reduce the EU’s emissions, for the EU not lose competitiveness in carbon-intensive goods and to make the targeted countries reduce the carbon intensity of their exports.
Issues with CBAM:
- The CBAM is a unilateral move, against the spirit of multilateralism.
- It could be used for protectionism.
- Rich countries design equity considerations to avoid paying for creating the climate problem.
- It targets production processes (not the product itself) that the WTO does not approve of.
How will it affect the Global South? This mechanism seeks to penalise “free riders” – one who is not contributing, although has the means to do so.
- Only 3 of the 12 exporters to the EU have a mechanism for “pricing carbon”.
- The countries most affected will be Russia, Ukraine, Turkey, India and China.
- A global price for carbon to redress the global “externality”.
- Clarity on the following before CBAM is implemented:
- First, which countries will be exempt? These are likely to be those that possibly have a national emissions cap or a sectoral cap or are the poorest countries.
- Secondly, the levying of the import tax includes the inclusion of which emissions.
- Possibly, the inclusion will focus on products with narrow coverage but high trade and carbon exposure.
Managing Climate Finance Mechanisms,Managing Climate Finance Mechanisms